endowment effect

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The tendency to demand much more to give up an object than one is willing to pay to acquire it. The phenomenon was identified and named in 1980 by the US economist Richard H. Thaler (born 1945) and subsequently investigated experimentally by Thaler and others. In a typical experiment, participants were given either a lottery ticket or $2.00. Some time later, each participant was offered the opportunity to trade the lottery ticket for money, or vice versa, but very few chose to switch, most preferring what they were endowed with. The phenomenon is closely related to loss aversion, and it shows that preferences must be understood in relation to status quo reference points, as in prospect theory. Also called status quo bias. See also cognitive dissonance.

Subjects: Psychology.

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